Ukraine. Agricultural product exporters may get deprived of VAT refund payments

11.01.2019

The State Fiscal Service of Ukraine (SFSU) has prepared proposals on amending the Tax Code. The amendments provide for the cancellation of export VAT refunds for grains, oilseeds and vegetable oils. In particular, crops such as wheat, barley, corn, sunflower seed, soybeans, rapeseed are mentioned there, as well as sunflower, soybean and rape oils.

The reasons for the cancellation of agricultural export VAT refunds cited by the SFSU include a significant grey market available in the country, so-called “twists,” and an excess of refund payments over agricultural VAT revenues to the State Budget.

As a reminder, from March 1, 2018, the Verkhovna Rada (Parliament) cancelled soybean and sunseed export VAT refunds for all exporters except for direct growers. A similar regulation for rapeseed will come into force from January 1, 2020.

In the opinion of UkrAgroConsult, it is very likely that the SFSU’s proposals will be accepted and VAT refunds for major agricultural commodities will be cancelled. The main reason is problems with pumping up the State Budget. Market participants report resumption of frequent inspections, VAT refund payment delays and other issues.

Such a precedent was already set in recent history, when grain export VAT was only refunded to the direct grower or first intermediary. This brought about a drop in domestic prices and decreased farmer profits by 15-20%.

Unprecedented is the proposal to cancel export VAT refunds for vegetable oils. The world market currently experiences a period of low prices. Quite often, profits of a fat-and-oil plant are only made up of VAT refunds. Should the companies get deprived of VAT refunds, Ukrainian oil may become far less competitive in the global market. In turn, such an event may entail an extremely adverse development scenario for the fat-and-oil industry in Ukraine.

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